The federal government is moving to recoup billions by closing loopholes that are exploited by multinational companies to shift profits and losses across international borders to minimise their tax bills.

The moves comes after Fairfax Media reported that Australia's largest coalminer, Glencore (formerly Xstrata) paid almost no tax over the past three years, despite generating income of $15 billion.

From The Age, June 27, 2014.

The proposed changes will be legislated within weeks and are likely to receive the support of the opposition and most crossbench senators - especially as they derive in part from measures announced by the Gillard government.

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In the Treasurer's sights are the so-called ''thin capitalisation'' arrangements adopted by companies where they load up debt in parts of the business located in high tax jurisdictions in order to minimise taxable income.

This would reduce the amount of debt a company can carry on its books relative to its asset holdings.

Under the new system, the maximum ratio of debt to equity a company can present in its structure will drop from 75 per cent under the current rules to 60 per cent.

Companies with debt levels beyond that threshold will automatically attract the special attention of the Australian Tax Office.

A second measure is designed to limit the deductable costs associated with interest payments.

Exemptions from so-called ''non-portfolio dividends'' have been used by companies to effectively game the taxation system by having such funds treated as interest instead of debt repayments.

Mr Hockey, who is battling to save large tracts of his first budget from an intransigent opposition and a hostile Senate, said such corporate tax reform was vital.

"We are determined to create a level playing field for taxation of businesses so that a large multinational faces the same tax environment as a small business on the corner,'' he said.

With Australia chairing the G20 later this year, Mr Hockey is leaning on his counterparts in the world's leading economies to establish what has so far proved to be highly elusive in international tax reform: co-operation.

"We need a global solution to a global problem and we need a solution that will work and is not cosmetic,'' he said.

But while he is enacting some aspects of the previous government's approach, he remained critical of the opposition overall, after significant parts of the Labor tax plan proved either ''unimplementable'' according to Treasury officials, or was deemed likely to create unforeseen problems.

The moves, some of which have not yet been detailed, could see $2 billion returned to government coffers over the next four years.

The government move will blunt a renewed attack on it by the opposition which has accused it of allowing more than $1.1 billion in corporate tax revenue to slip through its fingers, while adopting tough measures to clamp down on seniors and the unemployed.

Tax evasion and tax minimisation are endemic problems for sovereign governments as companies shift debt and equity between various arms to minimise the overall bill. Practices include internal loans at high interest rates which are used to redesignate funds as costs rather than income.

As Fairfax Media reported a week ago, Glencore was able to book massive deductions by using expensive internal loans of nearly $3.5 billion with interest rates of up to 9 per cent which was around twice the interest rate of commercial funding. While it did this, it also lent money to ''related parties'' at no interest.

176 comments

Deemed interest rates are good enough for pensioners savings...why not for multinationals borrowings?

Commenter

Bron

Location

NSW

Date and time

July 03, 2014, 7:39AM

More like promoting tax havens.

Commenter

ray pace

Location

narrabeen

Date and time

July 03, 2014, 8:28AM

At last some real tax reform. Good on you Joe. This will be good for the country and the budget bottom line.

Commenter

Rod

Location

the Coast

Date and time

July 03, 2014, 8:37AM

Excellent pointThe Government should have a special squad looking into Corporate avoidance.They should work on a commosion basis just as the Corporates have an army of accountants with hefty fees helping them avoid their tax liability

Commenter

pegarmo

Location

hunter

Date and time

July 03, 2014, 8:39AM

...and Family trusts one of the biggest rorts going around but of course this is blue blood Coalition territory so don't hold your breath!!

Commenter

George

Location

East Melbourne

Date and time

July 03, 2014, 8:58AM

Cause multi-nationals fill pollie pockets?

Commenter

Brainiac

Date and time

July 03, 2014, 9:02AM

The Govt must also focus on rich migrants who hide their incomes in multi-layers of trusts incorporated in British Virgin Islands.

Commenter

Dr B S Goh

Location

Australian in Asia

Date and time

July 03, 2014, 9:04AM

No need - such arrangements clearly are tax avoidance measures designed to avoid their tax obligations and contrary to the Tax Act - problem is the ATO doesn't have the guts to issue notices and take them to court because the company will fight - the tax office is shy of going to court.

Commenter

the_Truth

Location

Melbourne

Date and time

July 03, 2014, 9:06AM

Jingoistic Hockeynomics - appeal to the xenophobe sentiment while ignoring the fact that the rich pay proportionally way less tax than the average and disadvantaged Australian.

Commenter

rod steiger

Location

toukley

Date and time

July 03, 2014, 9:10AM

At last some tax action (or threatened) on the big end of town.

This should have happened at the start of the plan and not just as an afterthought and it should not be limited to the mining companies, what about Google, Apple.etc

At the ame time they hould axe the diesel rate subsidy for the mining industry, why should they be given additional funds to pullute!!